Cloonan’s Legacy

Comments on “Reflections on the Past and Future for the Individual Investor,” by James B. Cloonan, in the November 2017 AAII Journal:

Dr. Cloonan, thank you. I remember paying a broker 8% commission on a mutual fund 35 years ago. My cousin introduced me to AAII. I can say I have been a disciple since. Thanks to you and AAII, I feel I have done a reasonable job at providing a comfortable retirement for my wife and I, and I will be able to provide for my children and grandchildren. I am currently trying to get them interested in AAII.
—Gregory Harold from Georgia

Active vs. Passive Investing

Comments on “Discontinuing the Model Fund Portfolio, but Keeping the Level3 Passive Portfolio,” by James B. Cloonan, in the November 2017 AAII Journal:

I understand that 14 years is a long time, but I believe that the depth of the most recent bear market extended passive investing’s advantage in what has always been a cyclical active/passive race. If I’m right—and the rising number of active managers who have begun to beat the indexes provide evidence that I am—then this is exactly the wrong time to be abandoning active management.
—Ed from Wisconsin

Ed, according to SPIVA (S&P Dow Jones Indices Versus Active), more active managers have begun to beat the indexes. But that is over the last year. For longer periods, there is no contest.

The following quote is from the June 2017 SPIVA report “Over the 15-year investment horizon, 93.18% of large-cap managers, 94.40% of mid-cap managers and 94.43% of small-cap managers failed to outperform on a relative basis.”

If you have a long investment horizon, anytime is exactly the right time to abandon active management.
—John Lambert from New Jersey

Richard Thaler’s Endowment Effect

Comments on “How Human Behavior Differs From Traditional Economic Models,” an interview with Richard Thaler, in the December 2017 AAII Journal:

The terms “loss aversion,” “endowment effect” and “econs” are now part of my vocabulary for as long as I can remember them!

Thank you for an enlightening interview with Dr. Thaler.
—Gregory DePriest from Tennessee

A magnificent article. Thanks for distilling Dr. Thaler’s important nuggets of research wisdom.

The concept of the “endowment effect” is not only a problem for individual investors, but also for many professional advisers I know ... who incidentally are also cut from the same human cloth.
—Scott Juds from Washington

If you have not yet read Dr. Thaler’s book “Misbehaving: The Making of Behavioral Economics” (W.W. Norton & Company, 2015), read it NOW.
—Mark Segal from Nevada

Looking Forward to February…

To all the writers at AAII,

Thank you for the many years of investment advice—you’re the only writers I trust.

As a lifetime member who has attended many of your conferences and benefited from your wise articles, thanks. In the twilight of my life, I do not get to many meetings now, but when the AAII Journal arrives, I devour it!

As a widow who was bewildered when my husband died, I had no idea how to invest, but I joined an investing club and found out about AAII. Space has restricted my copies of the AAII Journal on the shelf, but right now they go back to 2011 and I often re-read your good advice. Keep up the good work and don’t let us down!

Of course, my favorite month is February, which seems to disappear from my collection now and then as I lend the mutual fund guide out. (Only two months from the date of this letter until February 2018!)
—Joyce Baker from California

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